Financial Management and Economics

Supply of Primary Care Workforce


Scenario: Your hospital has an opportunity to participate with an Accountable Care Organization (ACO) contract with 100,000 ACO patients. The ACO patient population expects about 10,000 avoidable hospitalizations per year with a potential savings of $100 million, which will be shared as follows: 50% revenue to the insurer and 50% revenue to the hospital. The ACO patient population will require an average of six office visits per year, and 600,000 total office visits will need to be supplied by your primary care workforce.


To prepare for this Assignment:


Based on the scenario and financial data provided by the course Instructor, conduct a financial projection (revenues, expenses, and profit) that analyzes the efficiency in the supply of health services.


The Assignment:


In a 2- to 3-page Word document that includes tables and/or calculations, make recommendations on the following: 1) number of physicians and nurse practitioners needed; 2) reimbursement method: salary or fee-for-service; 3) recommendations for financial incentives to address the challenges of supplier-induced demand and how to ensure efficiency. Interpret the net profit from the ACO contract based on your recommendations. Explain the rationale behind your recommendations, including the impact made by your financial calculations.


Financial Data


ACO revenue:  
Number of ACO patients 100,000
Potential savings:  
Number of avoidable hospitalizations per patient 0.1
Total avoidable hospitalizations per year 10,000
Cost per avoidable hospitalization $10,000
Total cost of avoidable hospitalizations $100,000,000
Demand for healthcare/utilization:  
Number of office visits per patient 6
Total office visits per year 600,000
Supply of workforce/expense:  
Employed providers (salary)  
    Physician salary per year $200,000
    Nurse practitioner salary per year $100,000
Contracted providers (fee-for-service)  
    Physician fee per visit $100
    Nurse practitioner fee per visit $50
Physician visits per year 3,000
Nurse practitioner visits per year 2,000
Financial incentives:  
Salary bonus to ensure efficiency 10%
Bonus fee per visit to ensure efficiency $1
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